Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)18 Continuous disclosure
18.1 The provisions relating to continuous disclosure currently contained in Part 7.11 of the Corporations Law (sections 1001A and 1001B) will be located in proposed Chapter 6CA. Their placement near Chapter 6D reflects the fact that these provisions deal with ongoing disclosure obligations in relation to securities as defined for the purposes of Chapters 6D and 7. Ongoing disclosure obligations in relation to financial products other than securities will be dealt with in proposed section 1017B. Amendments will be made to correct cross-references in the current provisions.
18.2 In addition to their re-location, the provisions will be amended to take account of changes being made by the FSR Bill as well as the recommendations of the CASAC Report on Continuous Disclosure.
18.3 Contraventions of these provisions will be made financial services civil penalty provisions, in line with the approach being taken to a number of other prohibitions related to market misconduct.
18.4 These proposed amendments are contained in Schedule 2.
Amendments to Part 1.2A - Disclosing Entities
18.5 Subsection 111AE(1) of the proposed Corporations Act will be amended so that if a body is (with its agreement) included in the official list of a prescribed financial market, and that markets listing rules apply according to their terms to the body in relation to a class securities issued by the body, then those securities will be ED securities and that market will be listing market in relation to that body (Item 10 of Schedule 2).
18.6 A significant change from the existing subsection 111AE(1) is that securities no longer have to be actually quoted on a market before the continuous disclosure obligations apply according to the listing rules. This means that it is now possible (depending on an individual markets listing rules) that continuous disclosure may apply when securities are suspended from trading, or after a body is listed but before the securities are actually quoted. This will remove a number of existing anomalies and provide markets with greater flexibility.
18.7 The second significant change is that the continuous disclosure obligations will only apply when a body is included in the official list of a prescribed financial market.
18.8 Proposed subsection 111AE(1A) similarly deals with the application of continuous disclosure to listed managed investment schemes.
18.9 In relation to the application of continuous disclosure under section 111AF (unquoted securities), proposed section 111AFA (Item 15 of Schedule 2) will preserve the existing treatment of interests in managed investment schemes. This new provision is required as disclosure in relation to such interests will now take place under Part 7.9 rather than Chapter 6D.
18.10 In the same way as current section 713 provides relief for continuously quoted securities, proposed section 1013I will modify the PDS obligations in relation to managed investment products that are subject to continuous disclosure. Amendments will be made to section 713 of the proposed Corporations Act to omit references to managed investment schemes.
Disclosure for listed disclosing entities bound by disclosure requirements in listing rules
18.11 Proposed section 674 (Item 24 of Schedule 2) generally replicates section 1001A of the Corporations Law, subject to changes in terminology. In order to comply with the Criminal Code, the fault elements currently contained in subsections 1001A(2) and (3) have been omitted and the default fault elements under the Code will apply in future to offences against this provision. Proposed section 678 applies the Criminal Code to all offences in Chapter 6CA at commencement.
18.12 Proposed subsection 674(5) requires an operator of a listing market to make provisions of the listing rules that relate to continuous disclosure available to listed disclosing entities. This provision will ensure that listed disclosing entities are aware of their obligations under the listing rules where those obligations could result in criminal liability.
Disclosure for other disclosing entities
18.13 Proposed section 675 is the equivalent of section 1001B of the Corporations Law. However, it would apply not just to unlisted disclosing entities but also to any listed disclosing entity where none of its listing markets has listing rules that contain obligations to continuously disclose information.
18.14 For these bodies, there is an obligation (like section 1001B of the Corporations Law) to lodge a document containing information that is not generally available and that a reasonable person would expect, if it were generally available, to have a material effect on the price or value of ED securities of the body. The information does not have to disclosed if:
- •
- in the case of securities that are not managed investment products, the information doesnt have to be included in a supplementary or replacement disclosure document;
- •
- if the securities are managed investment products, the information has not been included in a PDS or supplementary PDS which has been lodged with ASIC;
- •
- in any case, the information does not have to be disclosed if the regulations provide that it does not have to be.
18.15 It is envisaged that the regulations will provide for exceptions to proposed section 675 that will fulfil the role of the exceptions to proposed section 674 that may be contained in a markets listing rules. These are necessary to prevent the disclosure of commercially damaging information or information whose disclosure would be detrimental to the interests of shareholders or the members of a managed investment scheme.
18.16 Proposed section 676 contains a definition of when information is generally available that is equivalent to the one currently in section 1001C. Similarly, proposed section 675 defines material effect on price or value in the same way as current section 1001D.
Evidential use of information
18.17 Under the Corporations Law, only documents lodged with ASIC are admissible as evidence under subsection 1274(5). Subsection 1274(2A) (documents lodged with ASIC) only covers documents provided by a securities exchange to ASIC under subsection 766(2B).
18.18 It is proposed that subsection 1274(2A) of the proposed Corporations Act will be amended (Items 32 and 33 of Schedule 2) so that any document given to ASIC by a market licensee that contains information that the licensee has made available to participants in the market will be taken to be a document lodged with ASIC for the purposes of subsections 1274(2) and 1274(5). This is in accordance with a recommendation contained in CASACs Report on Continuous Disclosure .